2004 P T D (Trib.) 583

[Income-tax Appellate Tribunal Pakistan]

Before Jawaid Masood Tahir Bhatti, S. Hasan Imam, Judicial Members and Shaheen Iqbal, Accountant Member

I.T.As. Nos. 410/KB to 448/KB, 457/KB to 470/KB, 536/KB and 537/KB of 2003, decided on 30/08/2003.

(a) Income Tax Ordinance (XXXI of 1979)---

----First Sched., Part I, para. (A), proviso (f) & Part IV, para. 2(13)-- Rebate ---Exemption---Para. (2B) of Part, I of First Sched. of the Income tax Ordinance, 1979 exempted payment of super-tax by ,a registered firm of professionals---Exemption implied that although .the levy of super-tax in the hands of registered firm of professionals was chargeable but the same was not payable---Although super-tax may not be actually paid by the registered firm but it would be taken into account for the purposes of proviso (f) of para. A of Part I, the First Sched, of the Income Tax Ordinance, 1979---Fact that under para. (2B), Part IV of the First Sched. of the- Income Tax Ordinance, 1979 super tax was "payable" and not "chargeable" could be appreciated from the fact that said para. used the term "payable" and not "chargeable".

(b) Income-tax---

----"Chargeability is a component completely different from "payability" ' or "collectibility" in a taxing statute.

Kohinoor -Textile v. Federation of Pakistan 2002 PTD 121 rel.

(c) Tax Ordinance (XXXI of 1979)---

----First Sched., Part IV, para. (2B)---Super-talc---Super tax in the hands of a firm of professionals was "chargeable" but not "payable" in view of para. (2B) of Part IV of the First Schcd. of the Income Tax Ordinance, 1979.

Al-Samrez v. Federation of Pakistan 1986 SCIVIR 1917 and Ittefaq Foundry v. Federation of Pakistan PLD 1990 Lah. 121 rel.

(d) Income Tax Ordinance (XXXI of 1979)-----

----First Sched., Part IV, para. (2B) & Part I, para. (A), proviso (f)-- Super tax on registered firm of professionals---Proper construction of para. (2B) of Part IV of First Schedule of income Tax Ordinance, 1979 would be that super tax although "chargeable" but the same was not "payable" in the case of registered firms of professionals.

A.V. Fernandez v. State of Kerala AIR 1957 SC 657 = (1957) 8 STC 561 (SC) and Ahmed Khan v. CTO (1986) 63 STC 104 (Cal.) rel.

(e) Income Tax Ordinance (XXXI of 1979)-----

----First Sched., Part 1, para. A, proviso (f), Part II, para. (C), Part IV, para. (2B) & S. 66-A---Benefit of proviso (f) of para. A of Part I of the First Sched. to the Income Tax Ordinance, 1979 was disallowed by the Inspecting Additional Commissioner on the ground that since under para. (2B) of Part IV of the First Sched. of the Income 7 ax Ordinance, 1979, no super-tax was paid by the registered firm being professional firm in which assessees were partner, no rebate could have been taken. by their partners and proviso (f) to para. A of Part I of First Sched. of the Income Tax Ordinance, 1979 only, applied where super-tax was actually paid by the firm---Validity---Proviso (f) of para. A of Part I of the First Sched. of the Income Tax Ordinance, 1979 had two parts---One prescribed the basic qualification for rebate and the other was the yardstick for calculation thereof ---Assessee met both the requirements as both the parts of proviso (f) made para. (c) as the criteria which was fully complied with by the assessee so as to qualify for the rebate--Proviso (f) was applicable where individuals were partners in a firm to which para. (c) applied ---Para. (c) in turn, prescribes various rates of super-tax, in the case of registered firms only---When para. (c) applied to the firms then the criteria prescribed in proviso (1) was fulfilled and assessee would be entitled to the rebate contained therein---Only qualification prescribed in proviso (f) was the applicability of para- (c), which requirement was sufficiently met by the assessee---Such fact could be appreciated from the words used in proviso (1) i.e. "where the total income includes any income from the share of the income, profits and gains of a firm to which para. (c) of Part II applies... "---Remaining portion of proviso (f) made super-tax as yardstick for calculation of the rebate, which had nothing to do with the criterion for qualifying for the rebate, since in a taxing statute the, yardstick for calculation of tax is a component different from "payability"/ "chargeability".

(f) Income Tax Ordinance '(XXXI of 1979)---

----First Sched., Part 1, para. A, proviso (f), Part II, para. (C) & Part IV, para. (2B)---Criteria for calculation of rebate of partners of registered firm of professionals- --Proviso (f) of para. A of Part I of the First Sched.' of the Income Tax Ordinance, 1979 prescribed the criteria for calculation of rebate i.e. " such portion of the super-tax payable under para. C of Part IV of the First Sched. of the Income Tax Ordinance, 1979 as bears to the total amount of such super-tax..."-- Words "payable under the said paragraph" and "such super-tax" were of absolute importance---Paragraph referred to in proviso (f) in para. (c) and not para. (2B) and for rebate under proviso (f), para. (c) and not, para. (2B) was the criteria while under para. (c) super-tax was calculable---Had the Legislature employed para. (2B) as the criteria for calculation of rebate in proviso (f), then there could have been some strength in the Department's stand since no super-tax was calculable under para. (2B) of Part IV of the First Sched. of the Income Tax Ordinance, 1979.

(g) Income Tax Ordinance (XXXI of 1979)---

----Ss.66-A, 9 & 69(4), First Sched. Part 1, para.A, proviso (fj, Part II, para. (C) & Part IV, para. (2B)---Finance Supplementary) (Amendment;. Act (IV of 1997), Preamble ---C.B.R Circular No. 13 of 1982, dated 23- 8-1982---C.B.R. Circular No.3(67)IT-172, dated 7-5-1973----Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order ---Assessee was a partner of registered firm of professionals---No super-tax was. paid by the registered firm being professional firm, under para. (2B) of Part IV of, the First Sched. of the Income Tax Ordinance, 1979-Assessee claimed benefit of rebate under proviso (f) to para. A of Part I of First Sched. of the Income Tax Ordinance, 1979 and the same was allowed by the Assessing Officer---Inspecting Additional Commissioner revised the assessment under S.66-A of the Income Tax Ordinance, 1979 on the ground that since under para. (2B) of Part IV of the First Sched. of the Income Tax Ordinance, 1979 no super-tax was paid by the registered firm being professional firm in which assessees were partner, no rebate could have been taken by their partners and proviso (f) to para. A of Part I to First Sched. of the Income Tax Ordinance, 1979 only applied where super-tax was actually paid by the firm---Validity---On plain construction of proviso (f) to para.A of Part I to First Schedule of the Income Tax Ordinance, 1979, the calculation of the rebate was to be made with reference to super tax calculable under para- (c) of Part II of the First Sched. of 'the Income Tax Ordinance, 1979, which could well be calculated---For purpose of proviso (f) to para. A of Part I to First Schedule of the Income Tax Ordinance, 1979 no reference was to be made to para. (2B), Part IV to First Sched: of the Income Tax Ordinance, 1979, as proviso (f) to para. A of Part I to First Sched. of the: Income Tax Ordinance, 1979 expressly made the super-tax payable under para. (c) of Part II of First Sched. of the Income Tax Ordinance, 1979 as the criteria, while making no mention of para. (2B) of Part IV of First Sched. of the Income Tax Ordinance, 1979---Criteria under proviso (f) to para. A of Part I to First Sched. of the Income tax Ordinance, 1979 was not actual payment of super-tax but an amount which would be payable under para. (c). of Part II to First Sched. of the Income Tax Ordinance, 1979---Super-tax was payable under pare. _ (c) of Part II to First Sched. of the Income Tax Ordinance, 1979 but the same was exempt due to operation of para. (2B) of Part IV of First Sched. of the Income Tax Ordinance, 1979-- Orders under S:66-A of the Income Tax Ordinance, 1979 were not sustainable being unlawful and without jurisdiction ---Assessee had correctly taken the benefit of proviso (f) to para. A of Part I to First Sched. of the Income Tax Ordinance, 1979---Orders of Inspecting. Additional Commissioner under S.66-A of the Income Tax Ordinance, 1979 were annulled and appeals were allowed by the Appellate Tribunal.

Robertson v. Day App. Cas. 62; Gibson and Howes Ltd. v. Lennon 24 CLR 140; 26 CLR 285, Bourne v. Norwich Crematorium (1967) 2 Ail ER 567; Kesavananda Bhartia v. State of Kerala AIR 1973 SC 1461; Bisvil v. Superintendent, Central Excise PLD 1988 SC 370; Khurram Industries v. CIT.2001 PTD 781; Ch. Muhammad Yousuf v. Azad Government PLD 2001 Azad J&K 60; CIT v. Naveed Ahmed Sheikh 1992 PTD 25 and Bindra's Interpretation of Statutes by Justice K. Shanmukham, 8th Edn., 1997 rel.

1983 PTD 201; PLD 1985 Pesh. 17; PLD 1988 Lah. 501; Golden Graphics v. Director of Vigilance 1993 SCMR 1635; 1994 CLC 1406; 75 Tax 70; CIT, East Karachi v. Younus Brothers 1983 PTD 389; 1984 PTD 137; Aslam Industries v. Pakistan Edible Corporation 1993 SCMR 683; Government of Pakistan v. Akhlaque Hussain PLD 1965 SC 527; Al-Samrez v. Federation of Pakistan 1986 SCMR 1917; Pakistan .Tobacco Co. Ltd. v. Pakistan Tobacco Co. Employees' Union PLD 1961 SC 403; Muhammad Wasi Saigal v. Sheikh Rasheed Ahmed 1994 CLC 1406; CIT v. Philips PLD 1968 Kar. 95; Pramatha Nath v. Kamir PLD 1965 SC 434; Messrs Mehran Associates v. CIT 1993 SCMR 274; 1997 PTD (Trib.) 902; Feroz Shah v. CIT PLD 1970 Pesh. 83; Kohinoor Textile v. Federation of Pakistan 2002 PTD 121; Ittefaq Foundry v. Federation of Pakistan PLD 1990 Lah. 121; Aijaz Akhtar v. Secretary, Punjab Public Service Commission 1990 MLD 1475; .Messrs East and West Steam Shipping Co. v. Queen Lard Insurance PLD 1963 SC 663; Muhammad Zaman v. Collector PLD 1954 Pesh. 47; LA. Sherwani v. Federation of Pakistan 1991 SCMR. 10'11; Pakistan Textile Mills Owners' Association v. Administrator of Karachi PLD 1963 SC 137; Messrs Mondi's Refreshment Rooms and Bar v. Islamic Republic of Pakistan PLD 1983 Kar. 214 and Messrs Anoud Power Generation Limited v. Federation of Pakistan PLD 2001 SC 340 ref.

(h) Income-tax

----"Payable" was completely different from "paid".

(i) Income-tax----

----Vested right---Departmental practice, whether right or wrong, had given rise to vested right to the assessee, which could not be taken away.

Messrs Radaka Corporation v.. Collector of Customs 1989 SCMR 353 rel.

Fatehali W. Vellani and Mrs. Khushnum Munchrji and Dr. Farogh Naseem, Barrister-at-Law for Appellant.

Raja M. Irshad, Legal Advisor, C.B.R./D.A.-G. of Pakistan alongwith` Zafar Iqbal, Inayatullah Kashani, D.R., M. Sharif Awan, D.R./I.A.C., Sheikh M. Hanif (Author of the order), Abdul Salam, I.A.C. for Respondent.

Javed- Zakaria (on Court's call).

Date of hearing: 24^th May, 2003.

ORDER

JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER).----------This Full Bench has been constituted by the Hon'ble Chairman for disposal of fifty five appeals filed by the twenty nine individual assessees against the separate impugned orders in each case by the learned. IAC on the common questions of law/facts for the two assessment years 1999-2000 and 2000-2001 in the cases of twenty six assessees while in the cases of remaining three in the case of (Late) S.N.A. Bukhari, the appeal has been filed for assessment year 1..999-2000 and in the case of Mr. Haider Abbass and Mr. Sohail M. Khan, appeals have been filed for assessment year 2000-2001 only.

2. The facts giving rise to the present appeals are that the Appellants are partners of registered firms of Chartered Accountants. Admittedly, the Appellants are individuals, and the firms in which they are partners, are firms which derive income through the exercise of profession i.e. these are professional firms.

The appellants filed the returns of total income. taking benefit of the rebate prescribed in proviso (f) to paragraph (A) of Part 1 to the First Schedule (hereafter to be referred as proviso (f) of the Repealed Income Tax Ordinance, 1979. The assessments in all the cases, were finalized under section 62 of the Ordinance. Subsequently, the learned JAC revised the assessment under section 66-A of the 1979, Ordinance on the grounds that the appellants had incorrectly taken the benefit of the rebate under Proviso (f) for the reason that since under Paragraph (2B) of Part IV to the. First Schedule of the Ordinance, no super tax was paid by the registered firms being professional firms, in, which the appellants were partners, no rebate could have been taken by their partners i.e. the appellants, considering that proviso (f) only applies where super tax is actually paid by the firms. Succinctly stated the precise controversy is that proviso (f) allows partners of registered firms a rebated rate of tax if super tax is payable by those registered firms. Par a. (2B) -of Part IV to the First Schedule of the Ordinance exempts registered firms from the payment of super tax if those firms are engaged in the exercise of profession. The appellants being partners of registered firms claim the benefit of the rebate contained in proviso (f). The learned JAC has declined such benefit on the premise that the benefit to the partners under proviso (f) is only available if the firm pays super tax and since the firms in this case being firm engaged in the exercise of profession have not paid super tax because of the exemption under Para (2B), their partners cannot claim the benefit of the rebate under proviso (f).

As the practising Chartered Accountants (professionals) cannot form a ,limited company and are thus obliged to work together in the status of registered firm, the legislature has given to firms of professionals, 'relief in the form of exemption from payment of super tax. Para graph (2B) of Part IV of ,First Schedule to the Income Tax Ordinance, 1979, exempts such firms of professionals which by Rules. Conventions, or Regulations cannot be registered as a Corporate Body with a limited liability.

No super tax was levied by the DCIT on the incomes of the appellants in the present case and the total income of the firms assessed was allocated among the partners whose tax liability in the original assessment under section 62 was worked out by applying the proviso (f).

The Assessing Officer while calculating tax restricted it to 20% as provided under the said proviso and passed the assessment. order of the 'appellants. Subsequently as per the impugned orders, the learned IAC examined the records and observed that the assessment orders passed by the Assessing Officer (DCIT) were erroneous and prejudicial to the interest of Revenue, as according to the learned IAC the proviso (f) was applicable to only those registered firms which were liable to pay super tax under the provisions of paragraph.(c) of Part I of the First Schedule to the Ordinance, 1979.

3. In the opinion of the learned IAC the relief granted to the appellants by giving them the benefit/relief of the proviso (f) was erroneous insofar as it was prejudicial to the interest of Revenue. Notice: were, therefore, issued in each case under section 66-A of Income Ordinance, 1979, which were replied by the appellants and the learned IAC after detailed discussions have passed the impugned orders. We are reproducing herewith for the facility of the decision the relevant portion of the notice from one of the orders in the case of Mr. Shabbar Zaidi as has been reproduced in the order under section 66-A, which reads as under:--

"It has been observed from your assessment record that you were a partner of a Professional Firm Messrs A.F. Ferguson & Co. for the assessment year as captioned above, Statement of computation of income filed by you reflect out that income tax therein has been worked out by wrongly applying proviso (f) to Para-A of Part I of First Schedule to the Income Tax Ordinance, 1979 and assessment finalized accordingly as under:--

Computation of income and taxes thereonRupees

Share of profit form A.F. Ferguson &- Co.

. For the year ended 30-6-2000Rs.4,182,833

Less: Wealth tax on business capitalRs. 33,177

Total income [excluding dividends, capital gains (net)

And profit on PLS Account]Rs.4,149,656

.

Tax thereon: Rs.10,00,000Rs. 210,000

On balance: Rs. 3,149,656 @ 35%Rs.1,102,380Rs.1,312.380

Less: RebateRs. (2000)

Rs.1,310,380

Less; Reduction in tax liability under proviso (ii) to paragraph (a) of Part I of the First Schedule to the Ordinance.

Share of super tax of the firm (no super tax is payable by the firm, being a profession firm As provided under paragraph (2B) of Part.IV of the First Schedule to the Ordinance)

Income Tax payable as above:Rs.1,310,380

Less; 20% of total income before

The deduction of the share of super

Tax in the FirmRs.(829.931) Rs.480,449

Rs,829,931

Add: Surcharge @ 10%Rs 082 993

Rs.912,924

Less: Tax paid in advanceRs.698.574

Balance payableRs. 214350

As a matter of law, rebate already allowed is not admissible to you under the proviso (f) of Para A of the First Schedule to the Income Tax Ordinance, 1979, being a partner of the Professional Firm which enjoys exemption from Super Tax under Sub-Para 2(B) of Para A of Part IV of the First Schedule to the Income Tax Ordinance, 1979. The said proviso prescribes its applicability only to such cases where the firms, to which they are partners, are subject to Super Tax under the provisions of Paragraph-C of the: First Schedule. For the sake of elucidation the proviso is re-produced hereunleer:--

Clause (f)---Para. A of Part I of First Schedule to the Income Tax Ordinance, 1979:--

"(f) where the total income includes any income from a share of the income, profit and gains of a firm to which paragraph C of Part II applies, such portion of the Super Tax payable under the said paragraph as bears to the total income of such Super Tax the same proportion as his share of income, profit and gains of the firm bears to the total income of the firm shall be added to the income-tax payable by such partner, under this paragraph and if the sum so arrived at exceeds 20 % of the total income of such partner (including his share of income, profits and gains of the firm before the deduction of Super Tax), the amount of income tax payable by him under this paragraph shall be reduced by the amount of such excess."

In view of the above, the assessment as framed by the Assessing Officer in your case is both erroneous, as well as prejudicial to the interest of Revenue to the extent of allowing you rebate under the provision of clause (f) of para. A of the First Schedule to the Income Tax Ordinance, 1979 and which is proposed to be cancelled under the provisions of subsection (1) of section 66-A of Income Tax Ordinance, 1979.

You are therefore, requested to furnish your rebuttal point of view with regard to the above proposal alongwith evidence, if any, in support of your version and to show cause by 10-1-2002 as to why the assessment should not be cancelled for the reasons discussed above and a fresh assessment ordered to be made as under:--

Income assessed as per order under section 62 of the

Income Tax Ordinance; 1979Rs.4,149,656

Tax on above assessed incomeRs.1,310,380

Add ;SurchargeRs. 131,033

Total tax liabilityRs.1,441,4,8".

4. The replies to the show-cause notices were filed by all the assessees. The relevant portion of the reply in the matter of Mr. Shabbar Zaidi 'in one of the impugned orders under appeal is reproduced below:

"We refer to your letter No. IAC/R-III/ZD/2001-2002/436, dated December, 28,2001 addressed to Mr. Syed Muhammad Shabbar Zaidi in the matter of your proposal to invoke the provisions of section 66-A of Income Tax Ordinance, 1979 (the Ordinance). The proposed action is designed to cancel the assessment made by the Assessing Officer' under section 62, dated March 2, 2000 which in your view is erroneous and prejudicial to the interest of Revenue to the extent of the rebate allowed under proviso (f) of Paragraph (A) of Part I of the First Schedule to the Ordinance. Our partner Mr. Syed Muhammad Shabbar Zaidi has been asked to show cause as to why the assessment should not be cancelled and a fresh assessment be made under section 66-A ignoring the aforesaid rebate allowed in the assessment order.

2.On behalf of Mr. Syed Muhammad Shabbar Zaidi being a partner of Registered Firm we submit that we are not in agreement with your aforesaid proposal for reasons enumerated in the ensuing paragraph.

3.The rebate under aforesaid ,proviso was rightly claimed in the return of income and the Assessing Officer after examining the same has correctly allowed the said rebate.

4.In your letter referred to above, you have merely stated and we quote: The said proviso prescribed its applicability only to such cases where the firms to which they are partner are subjected to super tai, under the provisions of Paragraph C of Part II of the first Schedule.

5.You have assigned no reason for your interpretation of the said proviso (f) of Paragraph (A) of Part I which in your view is to be preferred to the view taken by the Assessing Officer. From the very tenor of 'your letter, it- is apparent that the proposed action under section 66A is merely because of your disagreement with the interpretation and opinion formed by the Assessing Officer. You have given no , reason to substantiate that the DCIT's order is deviation from the law. In 1983 PTD 201, it was held that there must be some material no record for the finding that the order .of the -Assessing Officer was erroneous and prejudicial to the interest of Revenue and "mere observation to that is not sufficient to assume jurisdiction."

6.The correct position is that the opinion of the DCIT is to be preferred being consistent as it is with a well-recognized rule of statutory interpretation which regards a proviso as an exception to the main provision to which it is appended. Proviso (f) is thus an exception to Paragraph (A) and income derived by an individual from a share of the income, profits and gains of a firm to which paragraph of a firm to which Paragraph C of Part II applied (i.e. registered firm, as a reference to that Paragraph will show). Income derived from share of the income, profits and gains of a registered firm is taxable in accordance with proviso (f) which is a special proviso and not in accordance with paragraph (a) which is a general provision, and to which the special provision is an exception. Where a partner derives income from a registered firm his income is taxable in accordance with, proviso (f), that being the special taxing provision applicable to him. It should be noted that proviso (f) does not stipulate that its provisions would apply only in the case of a registered firm which has actually paid super tax and there is not basis for adding or implying any such stipulation in proviso (f). It is again a well-known rule of statutory interpretation that there is no scope for reading or implying in a statutory provision words or concepts which the legislature has chosen not to express therein. . Extracts from the following cases are reproduced:

Meaning of a Proviso:.

PLD 1985 (Pesh.) 17 at 19 and 20

"As to the function which proviso performs in an enactment, we would quote with advantage the following observations of the Full Bench in Commissioner of Income Tax v. Philips Holzman A.G. Ammeejee Valeejee Sons:

The proper function of proviso is that it qualifies the generality of the main enactment by providing an exception and taking out as it were, from the main enactment a portion which, but for the proviso, would fall within the main enactment. There may be cases in which the language of the statute is so express and clear that a proviso may be construed as a substantive clause."

PLD 1988 (Lahore) 501 at 505

"A proviso, it is generally accepted, is in the nature of an exception to the substantive provision to which it has been appended. Reference is made to Pramatha Nath Chawdhry v. Kamir Mondal (PLD 1965 SC 434).

Special Provisions exclude general provisions

1993 SCMR 1635 at 1644

" ..When a special provision has been made on subject and there is also a general provision susceptible of covering the same field and the matter is covered by both the provisions, the presumption would be that the general provision is not intended to interfere with the operation of the special provision and the case shall have to be dealt with under the latter provision."

Words not contained in a statutory provision cannot be added.

1994 CLC (Karachi) 1406 at 1414

"It is the cardinal principle of the interpretation of statutes that nothing is, to be added to or subtracted from the statutory language and that where the letters of law clearly and unabhigously convey the intention of the legislature, there is no rule of interpretation that will permit, to infer such intention on the part of the legislature, that will cause devastation on the plain language used in the statute."

7.The rebate in the income tax payable by Mr. Syed Muhammad Shabbar Zaidi a partner in the aforesaid Registered Firm, has been allowed in accordance with proviso (f) of Paragraph (A) of Part I of the First Schedule to the Ordinance which reads as follows:--

"(f)Where the total income includes any income from a share of the income, profits and gains of a Firm to Which Paragraph C of Part II applies, such portion of the super tax payable under the said paragraph as bears to the total amount of such super tax the same proportion as his share of income, profits and gains of the firm bears to the total income of the firm shall be added to the income-tax payable by such partner under this paragraph, and, if the sum so arrived at exceeds 20 % of the total income of such partner (including his share of income, profits and gains of the firms before the deduction of super tax), the amount of income tax payable by him under this paragraph shall be reduced by the amount of such excess; and" (emphasis ours).

8.It is pertinent to note that the aforesaid proviso clearly states that the rebate in tax would be available where the total income includes "share of income, profits and gains of a firm to which paragraph C of Part II applies." There is no other qualifying or restrictive condition which authorizes an Assessing Officer to deduce, infer or impute any meaning or interpretation other than what the legislature in its wisdom has explicitly chosen to enact.

9.The' said Paragraph C of Part II gives the graduated rate of super `tax of which the first is NIL for total income not exceeding Rs.30,000 and it is applicable to every registered firm as is evident from the following:

"C.In the case of every registered firm:--

(4)Where the total income does not

exceed Rs.30,000Nil

(2)Where the total income exceed5 per cent of the amount

Rs.30,000 but does not exceedexceeding Rs.30,000

Rs, 80,000

(3)Where the total income exceedRs.2,500 plus 10 per cent of the

Rs.80,000 but does not exceedamount exceeding Rs.80,000

Rs. 130000)

(4).....................................................................................

(5).....................:

10.The rebate in tax as given in proviso (f) is thus available to the partner of every registered firm. The law only specifies that the total tax paid by a partner deriving a share of income, profits and gains of a registered firm is not to exceed 20 per cent of his total income: Nowhere does it provide that the rebate would be available only if the firm has super tax. From the slab rates given in paragraph 9 above; you will note that where the total income does not exceed Rs.30,000 no super tax is payable; but this cannot mean that the rebate available under aforesaid proviso (f) would not be available to a partner only because no super is payable by the firm. There is no such restriction or condition in the aforementioned proviso (1). You are reading something in the law which is not there in order to arrive at preconceived desired results. In the decision reported as 75 Tax 70, the Income Tax Appellate Tribunal (Headquarter), Karachi Bench deprecated this practice while examining the provisions of section 66-A and we quote:

"under section 66-A of Income Tax Ordinance, 1979, an IAC has no authority to substitute his own discretion and his own way of appreciating the facts arriving at. preconceived desired results."

As stated above your interpretation of proviso (f) is a mere disagreement with that of the Assessing Officer and this cannot be a ground for invoking of section 66-A. We quote from the aforementioned decision of the Headquarter Bench of the Tribunal.

"The Azad J & K High Court in the judgment reported as (1984) 49 Tax 34 (High Court AJ&K) = (1984 PTD 137) has made a distinction in the jurisdiction between' an I.T.O. and IAC as a supervisory officer. We are in respectful agreement with the observation of Azad J & K High Court that mere disagreement between officers on result of assessment could not be genuine reason to resort to the provision contained in section 66-A of Income Tax Ordinance, 1979 which contains similar provision as in section 34-A of the (Repealed) Income Tax Act, 1922."

11.Proviso (f) of Paragraph (A) of Part I of the First Schedule is the provision in law which entitles a partner of Registered Firm to a rebate in tax and is applicable to partners of all registered firms and not only to registered firms paying super tax. The exemption from super tax to professional firms is not given in paragraph C of Part II but in clause (2B) of para A of Part IV of the First Schedule to the Ordinance which is reproduced below:---

"(A) Notwithstanding anything contained in this Schedule,--.

(7) .........................................

(8) ..........................................

(2B) No super . tax shall be payable by a registered firm in respect of the income, profits and gains derived by it from the exercise of a profession if such income, profits and gains depend wholly or mainly on the professional qualifications of its partners who are prevented by any law for the time being in force or by convention or rules or regulations members to constitute themselves into a corporate body with a limited liability which can be registered as a company under the Companies Act, 1913 (VII of 1913), unless such profession consists wholly or mainly in the making of contracts on behalf of other persons or the giving to other persons of advice of a commercial nature in connection with the making of. contracts (emphasis provided)".

12.From the above, it is abundantly and incontrovertibly clear that the solitary criteria for being entitled to qualify for reduction in tax liability through the said rebate as provided under proviso (f) of paragraph (A) of Part I of the First Schedule to the Ordinance, is that the partner's total income should include -income from a firm to which paragraph C of Part II applies i.e. a registered firm. This is the only condition, and the construction used does not admit of any other interpretation. It is, thus not contemplated by law, i.e. the said proviso that the firm should have paid super tax under paragraph C of Part-II of the First Schedule. The different opinion which you now wish to substitute for the opinion of the Assessing Officer is based merely on surmises and conjectures on your part to arrive at a preconceived notion..

13.To our mind, the purport underlying proviso (f) of para graph (A) of Part I of the First Schedule to the Ordinance leaves no room for an interpretation other than this that a registered firm is not a legal entity in itself. Therefore, if any super tax is payable on the income of a registered firm, that too shall to the extent of the share of a partner of such registered firm, have to be construed as the partner's share of tax on his income and if the aggregate happens to exceed the benchmark of 20 % of such partner's income, his tax payable shall stand reduced to the extent of such excess.

14.The legislative intent underlying the proviso needs to be appreciated from the perspective that regardless of the fact, whether any super tax was or was not (for any lawful reason) paid by a registered firm, partner's aggregate tax liability on his income from a registered firm shall not exceed the said statutory benchmark. It is in this context, we submit, that your proposed action to lose sight of a rational objective which the legislature has provided for while enacting the said proviso.

15.Without prejudice to our foregoing contentions, we submit that your proposed action does not raise or is not a new finding' of fact. The truth of the matter is that your interpretation of proviso (f) is merely a disagreement with that of the Assessing Officer and this cannot be a ground for invoking section 66-A. We quote from the decision of the Headquarter Bench of the Tribunal:--

"the Azad J & K High Court in the judgment reported as (1984) 49 Tax 34 (High Court AJ&K) = (1984 PTD 137) has made a distinction in the jurisdiction between an I.T.O. and IAC as a supervisory officer. We are in respectful agreement with the observation of Azad J & K High Court that mere disagreement between officers on result of assessment could not be genuine reason to resort to the proviso contained in section 66-A Of Income Tax Ordinance, 1979 which contains similar provision as in section 34-A of the (Repealed) Income Tax Act, 1922. "

16.For the sake of further elaboration we submit that proviso (f) restricts aggregate tax liability (i.e. income tax & super tax),of a partner of a registered firm at 20%. of his total income. It seems to be your interpretation, that tax liability of a partner of a firm, which has paid super tax under Para C of Part II, is to be restricted at 20%. Without prejudice to the explanations made in the foregoing paragraphs, if your interpretation is accepted then partners of roistered firm deriving income from rendering of professional services will pay higher tax than partners of other registered firms and they shall be seriously in a disadvantageous position. Such unreasonable discrimination is not and could not be the intent of the legislature.

17.If your contention that proviso (f) to Paragraph A of Part I of the First Schedule to the Ordinance would apply only in cases where the Registered Firm (RF) is liable to super tax, is accepted the following position will emerge:--

Rupees

Total income of the R.F.3,000,000

Number of partners with equal shareTWO

Partnership profit of each partner1,500,000

Tax liability of one partner including his share in the

Super tax payable by the firm if .he is a Partner of:

(a)Professional Firm (on your proposed action) 4,21,300

(b)Non-professional Firm3,60,000

(c)Professional Firm (on our basis)330,000

You will agree that due to the concession granted to the Professional Firms i.e. no super tax payable by the professional firms, it was not intention to enhance the tax payable, but to give some relief to the Partners of Professional Firms.

18.In the circumstances your proposed action under section 66-A of the Ordinance is not sustainable in law and would be without lawful justification. We shall, therefore, be grateful if you will kindly drop the proceedings initiated vide your above referred notice under section 66-A of the Ordinance. Your agreement to our above request shall be greatly appreciated. However, if for any reason whatsoever your are not in agreement with our view, please give us an opportunity to discuss the matter in person with you".

5. The replies filed on behalf of the appellants were not accepted by the learned IAC for the reasons as mentioned in the relevant impugned orders. We are reproducing herewith the observations/findings of the learned IAC as discussed in the impugned order of Mr. Shabbar Zaidi:--

"There is no dispute that professional Registered Firm with certain conditions are not liable to pay super tax by virtue of provisions of clause (2B) of para. A Part IV of First Schedule.

Clause (f) para. A of Part I of First Schedule allows tax rebate and puts ceiling on maximum tax liability of partner of firms to which para. C of Part II applies. Whereas para. C of Part II gives graduated rate of Super Tax, meaning thereby that partners of those registered firms would be entitled for such rebate which pay super tax under para. C of Part II of First Schedule. As professional Registered Firm does not pay any super tax hence para. C of Part II does riot apply to it, therefore, its partners are not entitled for, any tax rebate allowable under clause (f) of para. A of Part I of First Schedule.

The claim of the said rebate has been allowed by the Assessing Officer without appreciating the law. There is no question of difference of opinion in this case. The law is very clear. The provision of proviso (f) to Paragraph A of Fart I of the First Schedule has two parts i.e. part relating to conditionality; and part relating to the concession.

(xvi)Therefore, the conditionality of applicability of Paragraph (c) of Part II of the First Schedule has to be first met before any claim of the concession in proviso (f) of para. A of Part I of the First Schedule. If intention of the legislature was to allow this concession to the partners of all registered or firms, then there was no need of imposing the conditionality of Paragraph (c) of Part II of the First Schedule.

(xvii)Rebate, exemption or 'concession is not by inference. It has to be established and in these cases such proof is lacking in totality.

(xviii)The benefit is being claimed under the proviso (f) of Para graph A of Part I of the First Schedule while the language of the proviso (f) providing for rebate restricts it to:

"a share of the, income of a firm to which Paragraph C applies."

(xix)In the case of the assessee it is not claimed:--

(j)That the income of the firm was not below 30,000 and super t .x was, not paid for that reason. In these cases in fact the total income of the firm was for beyond 30,000 yet super tax was not paid.

(k)Thus clause (c) had no application in the cases of instant Registered Firm and cannot be taken in aid.

(l)This is a partnership of professionals and the Registered Firm is not required to pay any super tax whatsoever.

(xx)It is thus more than obvious that in this case'--

Since paragraph (c) of Part II, of the Schedule is not applicable. Since paragraph (c) of Part II is inapplicable, proviso (f) to para. I also cannot be invoked. Since proviso (f) is not applicable, there is no question or warrant of any rebate under proviso (f). The above analysis gives emphatic conclusion that the Assessing Officer has imported a benefit which the assessee was not entitled to. The error is obvious on the very facts of the case. The error has resulted in a loss of revenue. On the facts and in the circumstances of the case this is a fit case to assume jurisdiction under section 66-A with a view of correcting the obvious' error and retrieving the loss of Revenue.

The rebate can be invoked only on the applicability to proviso (f) and not on any other part of Paragraph A.

The Department is construing the clauses as per recognized principles of interpretation and is not introducing any new words/concepts.

In 'fact it is the assessee who wants to wriggle out the conditionality embodied under proviso. (f) to para. A of Part I and Paragraph C of Part II.

There is no cavil with the ratio decidendi of PLD 1989 page 17 and PLD 1988 Lahore 501 or 1993 SCMR 1635 but all these are not relevant to establish the assessee's case. If propertly construed they can be applied with advantage for our point of view.

If rebate has been incorrectly allowed in the case of some other person, Mr. Ahmed D. Patel, then on the above analysis of legal position, it shall also have to be withdrawn.

Although paragraph C of Part II is correctly reproduced, the inference drawn is totally inapt and it is not correct that It applies to every Registered Firm. I am afraid it applied and can be invoked only in the category of Registered Firms who either pay super tax or their income is less than Rs.30,000. The distinction between "Super tax payable" and "super tax paid" and the distinction between the words "payable" and "paid" is not contemplated in the present case. In the case of registered firm of professionals no super ax is payable nor any super tax is paid. The legislatures, contemplation is couched in simple, ordinary language admitting of no controversy. The cited case of High Court of Karachi contained in (1983) 48 Taxation 192 in the case of CIT, East Karachi v. Younus Brothers has no bearing on the facts of the present case. In the said case in terms of section 19(1)(b) of I. T. Act, 1922 share of profit of a partner in a registered firm was to be determined by deducting super tax payable by firm and dividing the balance among the partners in the ratio as per deed and in that section 19(1)(b) particularly used the word "payable" by the firm and not "paid". There is no such distinction in the present paragraph C of Part II of the First Schedule. The ratio of the decision when applied will cut at the argument of the learned counsel. The Central Board of Revenue's Circular C. No. 3(67)IT-172, dated 7th May, 1973 relates to export rebate and also dwells upon the term "payable" and "paid" and the ultimate exemption so available. In the present state of law there is no such proposition and no such circular. Thus neither the cited case nor the circular referred to has any application in the present case. It would be fallacious to bring in an irrelevant argument that a registered firm is not a legal entity when a registered firm for income tax purpose is a legal "unit" and a "person" in terms of charging section 3. The implications as construed by the learned counsel is not correct and proper. The question of aggregate tax liability and the concept of `statutory bench-mark' are not relevant when we are applying a particular provision of law couched in very simple language. The questions of reasonableness, hardship are not available to be considered in taxing statutes much less by a tax officer. The law relateable to export rebate cannot be equated with the present law applicable to registered firm of professionals. These are two categorically different provisions of law. It is absolutely clear that there is no direct case-law on the subject. With due respect, the judgment of the Honourable High Court of Sindh does not touch upon the facts of the present case and the question of a binding judgment thereupon does not arise. I do no subscribe to the view that the show-cause notice under section 66-A holds do legal basis or justification. On the contrary it is immensely and abundantly within the framework of law and the jurisdiction conferred by the statute. I have stated earlier also that it is not a more disagreement but a mistake where the provisions have been incorrectly construed and the facts of the cited judgment (1984) 49 Taxation 34 are completely different and the ratio of decidendi of (1984) 49 Taxation 34 High Court of AJ&K equivalent to 1984 PTD 137 is not relevant for the purpose of the facts of the present case. Whether the partners of professional services are to consequential disadvantage is not a subject-matter to be considered by a tax office who has to impose and implement law as it exists. Anomaly if any can be taken up with the legislature. Keeping in view of the above discussion, the reply of the assessee is not according to law therefore rejected. The Assessing Officer has made assessment erroneously as relief has been granted to the assessee which is not applicable to him under the law. The assessment made by the Assessing Officer is also prejudicial to the interest of the Revenue, as substantial amount of tax is not charged. I therefore, keeping in view power vested to me under section 66-A of Income Tax Ordinance, 1979 cancel the assessment made by the Assessing Officer and modify the same as under:-

"Income assessed as per order u/s 62 of the I.T.Ord. 1979	Rs. 4,149,656
Tax on above assessed income	Rs. 1,310,380
Add: Surcharge	Rs. 131.038
Total tax liability	Rs.1,441.418"

The learned IAC in this way has revised/modified the assessment orders and the relief allowed by applying the provisions of proviso (f) of para. A of Part I of the First Schedule by the DCIT has been with drawn due to which the ceiling of tax at 20% remained no more applicable and the tax has been charged at the normal rate with maximum ceiling as provided in the schedule of rate of tax as modified by the learned IAC.

6. In our opinion, the issue which needs to be adjudicated can be precisely concised as under:--

"Whether availability of exemption from super tax under para.(2B) of Part IV to the First Schedule to a registered firm deriving income from the exercise of profession, would disqualify a partner of that firm from claiming rebate under proviso (f) to Part (A) of Part I to First Schedule."

7. Mr. Fateh W. Vellani, Advocate, the learned counsel appearing for some of the appellants has very ably argued the case and took us through very delicate intricacies of interpretation of statutes. He has submitted that proviso (f) categorically provides for a rebated rate and no other provision takes away this benefit from the appellants. The provisions of the statute must to construed in light of what is clearly expressed. He has in this respect placed reliance on the judgments of Honourable Supreme Court of Pakistan in the matters of Aslam Industries v. Pakistan Edible Corporation reported as 1993 SCMR 683 and Government of Pakistan v. Akhlaque Hussain reported as PLD 1965 SC 527. According to learned counsel, the law recognizes a distinction between "non-liability" and "exemption". The proviso (f) read with para. (2B) gives rise to a situation of "exemption" and not "non -liability". Reliance in this respect has been placed on a case titled Al-Samrez v. Federation of Pakistan reported as 1986 SCMR 1917. He has contended that in case the rebate under proviso (f) is declined, it shall give rise to a situation of absurdity, and it is a settled proposition of law that any construction leading to absurdity ought to be avoided. Reliance in this respect has been placed on a case titled Pakistan Tobacco Co. Ltd. v. Pakistan Tobacco Co. Employees' Union reported as PLD 1961 SC 403. According to learned counsel, Proviso (f) is to be fully applied and nothing is to be added or subtracted from the statutory language as held in a case titled Mohammad Wasi Saigal v. Sheikh Rasheed Ahmed reported as 1994 CLC 1406. He has submitted that the proviso (f) is a special provision and in law a proviso qualifies the generality of the main enactment. Accordingly, in case of conflict special provisions are to be given effect in preference to any general provision. Reliance is placed upon CIT v. Philips reported as PLD 1968 Kar. 95, Pramatha Nath v. Kamir reported as PLD 1965 SC 434 and Golden Graphics v. Director of Vigilance reported as 1993 SCMR 1635. He has argued that the tax can only be imposed if the charge is imposed in clear and unambiguous words without any room for intendment as held by the Honourable Supreme Court of Pakistan in the matter of Messrs Mehran Associates v. CIT reported as 1993 SCMR 274. According to him, as the conditions precedent required to invoke section 66-A of the Repealed Income Tax Ordinance, 1979 are not present, the impugned orders are illegal. Reliance in this respect has been placed on a case reported as 1997 PTD (Trib.) 902.

8. Dr. Mohammad Farogh Naseem, Barrister-at-Law, the learned counsel appearing for some of the appellants, has also argued the disputed issue at length explaining the relevant provisions of law and the case-law on the subject. According to him, the proviso (f) and para. (2B) are independent and mutually exclusive, the proviso (f) only has application with regard to para. (A), being the parent provision. As such para. (2B) remains inapplicable. Reliance in this respect has been placed on a case titled Feroz Shah v. CIT reported as PLD 1970 Pesh. 83. Dr. Farogh Naseem, relying upon cases titled Kohinoor Textile v. Federation of Pakistan reported as 2002 PTD 121, Al-Samrez v. Federation of Pakistan reported as 1986 SCMR 1917, Ittefaq Foundry v. Federation of Pakistan reported as PLD 1990 Lah. 121, A.V. Fernandez v. State of Kerala reported as AIR 1957 SC 657 = (1957) 8 STC 561 (SC) and Ahmed Khan v. CTO reported as (1986) 63 STC 104 (Cal), has argued that there are different components in a taxing statute which independently introduce "changeability" "payability" or "collectability". Upon the strength of the referred judgments, it has been vehemently contended that Para (2B) although levies super tax but exempts its payability. As such the pre-requisites prescribed in Proviso (f) are fully met by the appellants despite the exemption in para. (2B). According to him, applying the doctrines of "immediate connection", "contextual control" and the rule of strict construction as propounded in the matters of Rolsertson v. Day reported as App. Cas. 62, Gibson and Howes Ltd. v. Lennon reported as 24 CLR 140 and 26 CLR 285, Bourne v. Norwich Crematorium reported as (1967) 2 All ER 567, Kesavananda Bhartia v. State of Kerala reported as AIR 1973 SC 1461. Bisvil v. Superintendent Central Excise reported as PLD 1988 SC 370, Khurram Industries v. CIT reported as 2001 PTD. 781 and Ch. Mohammad Yousuf v. Azad Government reported as PLD 2001 AJ&K 60, Proviso (f) makes Para (C) and not Para (2B) as the criteria for rebate and the appellants having duly met the criteria prescribed in para. (C), are fully entitled to qualify for the rebate in proviso (f). He has contended that proviso (f) makes super tax "payable" and not "paid" as the decisive factor. Hence actual non-payment of the super tax by the registered firm is not fatal for qualification of rebate under Proviso (f). Reliance in this respect has been placed on a case titled CIT v. Naveed Ahmed Shaikh reported as 1992 PTD 25 and CIT v. Younus Brothers reported as (1983) 48 Taxation 192 (Kar). According to learned counsel, all along in the past the claim of rebate has never been denied. This departmental practice has given rise to vested rights as held in the matter of Messrs Radaka Corporation v. Collector of Customs reported as 1989 SCMR 353 by the Honourable Supreme Court of Pakistan. He has argued that proviso (f) is a beneficial legislation and its benefit cannot be denied to the appellants. Reliance in this respect has been placed on a case titled Aijaz Akhtar v. Secretary Punjab Public Service Commission reported as 1990 MLD 1475. He has repeated the contention raised by Mr. F.W. Vellani that interpretation given by the learned IAC would render both proviso (f) and para. (C) to be redundant, while in law redundancies and surplusages are to be avoided as held by the Honourable Supreme Court of Pakistan in the matter of Messrs East and West Steam Shipping Co. v. Queen Land Insurance reported as PLD 1963 SC 663. He has submitted that proviso (f), para. (C) and para. (2B) are to be given effect collaterally and no provisions are to be read in isolation, as held by the Honourable Peshawar High Court in a case of Muhammad Zaman v. Collector reported as PLD 1964 Pesh. 47. According to him, the IAC's interpretation is discriminatory, oppressive and violative of Article 25 of the Constitution. Reliance in this respect has been placed on as case of I.A. Sherwani v. Federation of Pakistan reported 1991 SCMR 1041.

9. On the other side, Mr. Raja Irshad, Advocate, the learned Deputy Attorney-General who has been specially engaged to represent the Department of Income Tax, opposing the above contentions of the learned counsels for the appellants, has submitted that super tax is neither chargeable nor payable by the firms and the jurisdiction under section 66-A of the Repealed Income Tax Ordinance, 1979 can be invoked if there is an error of law or fact in the order of the Assessing Officer coupled with loss of revenue. According to the learned DAG the orders of the Assessing Officer were incorrect, prejudicial to the interest of Revenue and hence the exercise of power under section 66-A was absolutely in order. Reliance in this respect has been placed on a case of United Builders Corporation v. CIT reported as (1984) 49 Taxation 34 (AJK). He has contended that fiscal statutes are to be strictly interpreted and in case of any conflict between general and special provisions the special provisions have to be given effect. According to him, para. (ZB) is a special provision and takes precedence over proviso (f) keeping in view the ratio of decision of the Honourable Supreme Court of Pakistan in the case of Messrs Golden Graphics v. Director of Vigilance, Central Excise reported as 1993 SCMR 1635. He is of the view that words in a 'statute have to be given their ordinary and natural meaning as held by the Honourable Supreme Court of Pakistan in a case titled Pakistan Textile Mills Owners' Association v. Administrator of Karachi PLD 1963 SC 137 and in the present scenario, there is no ambiguity in the plain words of the statute. He has contended that if a registered firm does not pay super tax in view of any exemption or otherwise in view of para. (2B), its partners would not be entitled to claim any rebate under proviso (f). According to him, para. (2B) no doubt is a part of a schedule, and being part of a statute it is to be given similar effect as wither provisions of the statute as held by the Honourable Sindh High Court in the matter of Messrs Mondi's Refreshment Rooms and Bar v. Islamic Republic of Pakistan reported as PLD 1983 Karachi 214. He has argued that a fiscal statute cannot be struck down on the touchstone of discrimination per se in terms of Article 25 of the Constitution as field in a case of Messrs Anoud Power Generation Limited v. Federation of Pakistan reported as PLD 2001 SC 340. Learned D.A.-G. has finally submitted that in case the appeals are allowed, it shall cause great loss of revenue for the exchequer.

10. After hearing the argument from the, learned representatives of the appellants and the Department, we have asked the Advocates, Chartered Accountants and Tax Practitioners present in the Court Room to say anything new which has not been covered by the arguments of the learned representatives from both the sides. Mr. Jawed Zakaria, Advocate, very ably spoke to assist the Court. He has stated that the provision of section 66-A are not attracted to these cases because the original order passed by the Assessing Officer is not prejudicial to the interest of Revenue. According to him, on the contrary the assessment orders are prejudicial to the interest of assessee. He has contended that to get the correct prospective of the issue we should go back to the year when exporters were allowed exemption/reduction of super tax payable by the firm under the provision of sub-para. 2 of Part A of Part IV of the 1st schedule and the professionals were allowed exemption from super tax under sub-para 2B of para. A of the Part IV of the First Schedule. Both the sub-para 2 and 2B allowed relief in respect of super tax payable by the specified persons. Sub-para 2 allowed relief to firms engaged in export business. Sub-para 2B exempted the RFs of professionals from payment of super tax. Purpose of both sub-paras was to allow relief in respect of super tax levied on R.Fs. under the provision of Para "C" of Part II of the First Schedule. According to him, in respect of exporters there is Hon'ble High Court judgment in the case of CIT v. Younus Brothers reported as (1983) 48 Taxation 192 that even if super tax is not payable on account of export rebate still the same would be deducted for computing the taxable income of the partners. In respect of exporters there is C. B. R. Circular No.13 of 1982 which not only directs to deduct the super tax payable which bas become nil due to export rebate for determining the divisible income of the partners but also directs that this super tax would also be allowed as an adjustment to determine the ceiling provided in clause "f" previously clause "e". He has submitted that in the example given in the Circular No. 13 of 1982 C.B.R. it has been demonstrated that in a case of exporter of two partners, where super tax payable is Rs.71,750 and due to export rebate the total super tax payable becomes nil. In spite of this, this super tax has been deducted for arriving divisible income and 50% of which i.e. Rs.35,875 has been added to the income tax payable to see if the total of income tax and super tax exceed the limit of maximum tax prescribed in that year which for the facility was adopted at 50%. According to him in the present case, the appellants are prepared and satisfied by payment of 20% of tax on their share of income from the RF, and the learned IAC should have realized that they have paid much more tax than stipulated in law as reflected in the chart given below. He has submitted that in his humble opinion if the law is correctly applied in these years, persons falling in high income brackets are not liable to pay any income tax and moreover super tax payable on firm is already exempt vide sub-para (2B) of Part IV of the First Schedule. Income tax is not payable because ceiling of 20% has to be calculated by adding the notional super tax payable to the income tax to be paid on the income of the partner as per the chart hereinunder. Clause (f) also speaks of super tax payable and not paid. In the example given in Circular No.13 of 1982 the C.B.R. has mentioned a case of exporter who does not have to pay any super tax on account of export rebate but notional super tax payable has been added to the income tax payable for calculating the tax rebate in excess of the ceiling.

Mr. Jawed Zakaria has in this respect submitted following chart demonstrating the tax calculation working, which in his opinion may be in case of correctly applying the law as compared to the working offered by the parties of professional firms:--

CLACULATION OF TAX OF PARTNERS OF

PROFESSIONALS FIRMS IF THE LAW IS

CORRECTLY APPLIED

Firm's income	Rs.7.5M.
Super tax payable.	Rs.1,845,000	(exempt vide sub-para 2B of Part IV of First Schedule).
50% share Income of partner for the purposes of clause (f) of Part 1 of First Schedule.	Rs.37,50,000
Income tax.	Rs.11,88,000
Add 50% share of notional Super tax.	Rs. 9,22,500
	Rs.21,10,500
Maximum ceiling of tax 20% of income (37,50,000)	Rs. 7,50,000.
Rebate to be allowed.	Rs.13,60,500
Tax payable.	Rs.11,88,000
Rebate:	Rs.13,60 500
Payable.	NIL

CALCULATION OF TAX OFFERED BY PARTNERS OF

PROFESSIONAL FIRMS:

Firm's income.	Rs.7.5 M
Super tax payable.	Rs.1,845,000	(exempt vide sub-para 2B of part IV of First Schedule).
50% share income of partner for the purposes of clause (f) of Part I of First Schedule.	Rs.37.50.000
Tax on Income of partner.	Rs.11,88,000
Maximum ceiling of tax 20% of income(37,50,000)	*Rs.7,50,000)
Rebate to be allowed.	Rs. 4,38,000
Tax payable.	Rs.11,88,000
RebateRs.	4,38,000
Tax paid by the partner.	Rs. 7,50,000

11. We have heard at length the arguments of Messrs Fateh Vellani, Advocate, Dr. Mohammad Farogh Naseem, Barrister-at-Law for the appellants, Mr. Raja Irshad, Deputy Attorney-General, representing the Department, Mr. Javed Zakaria Advocate on Court call, and have perused the impugned order of the learned IAC the assessment orders and the laws and reported cases referred by the learned representatives. Before considering the arguments advanced by the learned counsels, we find it reasonable for convenience to reproduce the relevant provision of law on the issue subject-matter in these appeals:--

Proviso (f) to clause (A) of Part -II of the First Schedule of the Income Tax Ordinance 1979 reads as follows:--

"(f) where the total income includes any income from a share of the income, profits and gains of a firm to which paragraph C of Part II applies, such portion of the super tax payable under the said paragraph as bears to the total amount of such super tax the same proportion as his share of income, profits and gains of the firm bears to the total income of the firm shall be added to the income, tax payable by such partner under this paragraph, and, if the sum so arrived at exceeds 20% of the total income of such partner (including his share of income, profits and gains of the firm before the deduction of super tax), the amount of income tax payable by him under this paragraph shall be reduced by the amount of such excess;"

Paragraph C to Part-II of the First Schedule to the Income Tax Ordinance 1979 reads as follows:

"C. In the case of every registered firm:
(1) Where the total income does not exceed Rs.30,000	Nil
(2) Where the total income exceeds Rs.30,000 but does not exceed Rs.80,000	5 per cent of the amount exceeding Rs.30,000
(3) Where the total income exceeds Rs.80,000 but does not exceed Rs.1,30,000	Rs.2,500 plus 10 per cent of the amount exceeding Rs.80,000
(4) Where the total income exceeds Rs.1,30,000 but does not exceed Rs.1,80,000	Rs.7,500 plus 15 percent of the amount exceeding Rs.1,30,000
(5) Where the total income exceeds Rs.1,80,000	Rs.15,000 plus 25 per cent of the amount exceeding Rs.1,80,000

Paragraph (2B) to Part IV of the First Schedule of the Income Tax Ordinance, 1979 read as follows:--

A. Notwithstanding anything contained in the Schedule,

"(1) ..................

(2)....................

(2A) ................."

"(2B) No super tax shall be payable by a registered firm in respect of the income, profits and gains derived by it from the exercise of a profession if such income, profits and gains depend wholly or mainly on the professional qualifications of its partners who are prevented by any law for the time being in force or by convention or rules or regulations of the professional association, society or similar body of which they are members to constitute themselves into a corporate body with a limited liability which can be registered as a company under the Companies Act, 1913 (VII of 1913), unless such profession consists wholly or mainly in the making of contracts on behalf of other persons or the giving to other person of advice of a commercial nature in connection with the making of contracts;"

Under section 69(4) of the Income Tax Ordinance, 1979 the manner in which the share of the partner of a firm ought to be calculated has been prescribed. We hereby reproduce the section 69:

69. Assessment of -firms and partners.---(1) Notwithstanding anything contained in this Ordnance, where the assessee is a firm and the total income of the firm has been determined or assessed under sections 59, [59A, 60] 62, 63 and 65, as the case may be,--

(a) in the case of the a registered firm,-

(i) the tax payable by the firm itself shall be determined;

(ii) the total income of each partner of the firm, including therein his share of its income, profits and gains of the income year shall be assessed and the sum payable by him on the basis of such assessment shall be determined;

(iii) if such share of any partner is a loss, it shall be set off against his other income or carried forward and set off in accordance with the provisions of sections 34, 35, 36, 37 and 38;

(iv) where any of such partners is a non-resident, his share assessed of the income profits and gains of the firm shall be assessed on the firm at the rates which would be applicable if it were assessed on him personally, and the sum so determined as payable shall by paid by the firm; and

(b) in the case of an unregistered firm, the Deputy Commissioner-

(i) may determine the tax payable by the firm on the basis of the total income of the firm; or

(ii) may proceed in the manner laid down in clause (a) as applicable to a registered firm, if, in his opinion, the aggregate amount of tax (including the tax payable under sub-clause (i) of that clause) would be greater than the aggregate amount which would be payable by the firm and the partners individually if the firm were assessed as an unregistered firm;

[Provided that this sub-clause shall not apply in respect of any assessment year commencing on or after the first day of July, 1986.]

(2) Whenever the Deputy Commissioner makes a determination in accordance with the provisions of subsection (1), he shall notify to the firm, by an order in writing, the amount of tax payable by it, if any, and the amount of total income on which the determination has been based and the appointment thereof between the several partners.

(3) Notwithstanding anything contained in subsection (1) of this section or subsection (4) of section 83, there shall be included in the total income of an assessee, being a partner in a firm,

(a) share income of the spouse or a minor child of the assessee from the firm in which the assessee is a partner; and

(b) share income of the spouse of the assessee from a firm in contribution, in any form, of the spouse in such firm is not provided, directly or indirectly, by the assessee; and

(c) share income of a minor child of the assessee from a firm' in which the assessee is not a partner unless the capital contribution, in any form, of the minor child in such firm is derived from inheritance passed on to him:

Provided that nothing in this subsection shall apply unless the assessee, in the cases referred to in clauses (b) and (c), and the spouse in the case referred to in clause (b), has been given a reasonable opportunity of being heard.

(4) For the purposes of this section, the share of a partner in the income of any firm means the aggregate of---

(a) the proportionate share in the total income of the firm as reduced by the tax, if any, payable by the firm and any sum referred to in clause (b); and

(b) any salary, brokerage, interest or commission receivable by the partner from the firm.

Section 9 of the Repealed Income Tax Ordinance, 1979 is regarding charge of Income tax which says:

9. Charge of income-tax.---(1) Subject to the provisions of this Ordinance, there shall be charged, levied and paid for each assessment year commencing on or after the first day of July, 1979, income tax in respect of the total income of the income year or years, as the case may be, of every person at the rate or rates specified in the First Schedule:

Provided that where, by virtue of an 'amendment in the First Schedule, the rate of income tax, for the purpose of assessment in respect of any assessment year, is altered, the rate of income tax existing prior to the said alteration shall continue to apply in respect of any assessment year to which the said existing rate is applicable.

(1A) Notwithstanding anything contained in section 37 of the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI, of 1980), or any other law for the time being in force, there shall be charged, levied and paid for each assessment year commencing on or after the first day of July, 1993, income tax in respect of the total income of a modaraba at the rate specified in the First Schedule:

Provided that the total income of a modaraba shall not be chargeable to tax for the first three assessment years after commencement of its business if not less than ninety per cent of its profits in a year is distributed to the modaraba certificate holders.

(2) Where by virtue of any' provision of this Ordinance, income tax is to, be deducted at source or collected or paid in advance, it shall be so deducted, collected or paid, as the case may be, accordingly.

12. We have found that following the charge of income tax under section 9 of the Ordinance, Part I of the First Schedule sets out in paragraph A the rate of income tax payable in the case inter alia of an individual. Number of provisos are attached to paragraph A and the present case fall under proviso (f) paragraph A and proviso (f) as applicable to these cases, were substituted by the Finance (Supplementary) Act 1997, the admitted position on both sides is that the maximum rate of tax payable by a partner deriving income from a registered firm is capped at 20%. It has been contended on behalf of the appellants that the Assessing Officer correctly applied this cap of 20% on the tax payable on total income as the total income includes a share of income derived from a registered firm. While according to learned IAC this cap apply only where the concerned, registered firm-has itself paid super tax and income does not exceed Rs.30,000 and super tax is not payable. Income is chargeable to super tax under section 10 of the Ordinance at rates prescribed in Part II of the First Schedule.--

As regards a firm, the chargeability to super tax arises under the paragraph C of Part II of the First Schedule, in the case of every registered firm.

Paragraph C itself does not exclude any category of registered firm from the charge of super tax. Under Paragraph C all registered firms without exception are chargeable to super tax.

The legislature for reasons best knows to itself had kept the aggregate- rate threshold at the same level even after the maximum rate of tax had been raised by the Finance Act, 1999. The Assessing Officer applied the threshold as prescribed for the relevant assessment year in proviso (f) to paragraph A in Part 1 of the First Schedule.

It would be helpful in arriving at the correct decision if a brief history of the application of the proviso (f) or similar provision is examined. The provision of proviso (f) which in different year has been proviso (e) and proviso (c) etc. has always been applied by the Department in the cases of the partners of registered firm of professionals which firms were exempt from super tax.

After going through the history legislation and assessment and departmental practice, it is noted that the legislation in respect of super tax on the firms of professionals and the calculation of income tax of the partners of these firms has remained more or less same as prior to amendment in 1991.

The relief was granted to the partners of the registered firm under the proviso (e) and prior to that proviso (c) in different years. The treatment given to the partners of the registered firms of the professionals has remained consistent except for the ceiling of maximum rate of tax which has changed during different years. However, in respect of the partners of firms other than those of professionals, a major change came vide Finance Act, 1991 that the maximum ceiling after 1991 was to be calculated by including the share of the registered firm before deduction of super tax. Prior to this change, in the case of higher incomes, the firm of non professional and their partners have to pay less tax if they were liable to super tax and have to pay more tax if they were not liable to super tax. A closer reading of proviso (f) and para. 2(b) would reveal that the former is only applicable when tax is calculated in the hands of the individual partner, whereas the latter applies only for the purposes of calculation of super tax in the hands of the registered firm. The two may not be confused as the two are independent and mutually exclusive, separate and distinct from each other. In other words, they occupy separate fields. Para (2B) exempts payment of super tax by a registered firm of professionals. The exemption implies that although the levy of super tax in the hands of registered firms of professionals is chargeable but the same is not payable. Accordingly, although super tax may not be actually paid by the registered firm but it will be taken into account for the purposes of Proviso (f). The fact that under para. (2B) super tax is "payable" and not "chargeable" can be appreciated from the fact that) para. (2B) uses the term "payable" and not "chargeable". It is now a settled proposition of law that "chargeability" is a component completely different from "payability" or "collectibility" in a taxing statute. In this respect, reference is placed on a case Kohinoor Textile v. Federation of Pakistan reported as 2002 PTD 121(c). The inescapable conclusion is that super tax in the hands of the firm is although "chargeable" but not "payable" in. view of 'Para (2B). The analysis as above is further supported by the decision of the Hon'ble Supreme Court of Pakistan titled Al-Samraz v. Federation of Pakistan reported as 1986 SCMR 1917 at page 1923 B and C, and in a case titled Ittefaq Foundry v. Federation of Pakistan reported as PLD 1990 Lah. 121 at page 140, para. 23, it has been conclusively held that the concept of exemption presupposes leviability/liability as distinct from "non- liability' or "non-changeability". Similar effect are the judgments reported as A.V. Fernandez v. State of Kerala AIR 1957 SC 657 = (1957) 8 STC 561 (SC) and Ahmed Khan v. CTO (1986) 63 STC 104 (Cal). Keeping in view all these judgments, we are of the view that the proper construction of Para (2B) would be that super tax is although `chargeable" but the same is not "payable" in the case of registered firms of professionals.

It can further be elaborated to fully understand through the following illustrations:--

(a) under the first slab rate falling under para. (C) i.e. for total income below Rs.30,000 the rate of super tax is at Nil. This does not mean that no super tax is chargeable but it means that for registered firms with income below Rs.30,000 super tax is chargeable but the same is not payable in view of the Nil/zero rate;

although agricultural income is exempt, it is relevant for the purposes of arriving at the rate of tax as mentioned in first proviso to clause I of the Second Schedule;

section 5 of the erstwhile Wealth Tax Act, 1963 had prescribed a list of exemptions in relation to certain assets which would not be included in the net wealth of the assessee. The language of section 5 thereof used the word "payable" as in the present Para (2B). The said section 5 provided as follows:--

"S. 5 .wealth tax shall not be payable by an assessee in respect of the following assets, and' such assets shall not be included in the net wealth of the assessee..."

The proper connotation of the above is that although wealth tax on the prescribed class of assets falling under section 5 was chargeable but the same was not payable;

In the Sales Tax Act, 1990 there is a concept of zero rated supplies. Section 2(48) of the Sales Tax Act, 1990 provides that zero rated supplies means that taxable supply which is charged to tax at zero rate, while section 4 prescribes categories which would qualify for the zero rating, for example certain types of exports etc. The basic concept here is that although the tax is chargeable but the same is not payable due to the zero rate.

Indeed proviso (f) has two parts. One prescribes the basic qualification for rebate and the order the yardstick for calculation thereof. We are of the view that the appellants meet both the requirements as both the parts of proviso (f) make para. (C) as the criteria which is fully complied by the appellants so as to qualify for the rebate. This can well be appreciated from the fact that proviso (f) is applicable where individuals are partners in a firm to which para. (C) applies. Para. (C) in turn prescribes various rates of super tax, in the case of registered firms only. If admittedly para. (C) applies to the firms then the criteria prescribed in proviso (f) is fulfilled. Thus the appellants would be entitled to the rebate contained therein. Also the only qualification prescribed in proviso (f) is the applicability of para. (C), which requirement is sufficiently met by the appellants. 'This can be appreciated from the following words in proviso (f) i.e. "where the total income includes any income from the share of the income, profits and gains of a firm to which paragraph (C) of Part II applies...". The remaining portion of proviso (f) makes super tax as the yardstick for calculation of the rebate, which has nothing to do with the criterion for qualifying for the rebate, since in a taxing statute the yardstick for calculation of tax is a component different from "payability"/"chargeability".

Even otherwise if the yardstick of measure of rebate in proviso (f) is taken, the appellants would still qualify for the rebate. Proviso (f) prescribes the following as the criteria for calculation of rebate i.e. "....such portion of the super tax payable under the said paragraph [i.e. para. (C)] as bears to the total amount of such super tax ..". The words "payable under the said paragraph" and "such super tax" are of absolute importance. The paragraph referred to in proviso (f) is para. (C) and not para. (2B). Hence for rebate under proviso (f), para. (C) and not para. (2B) is the criteria. And under para. (C) super tax is calculable. Had the legislature employed para. (2B) as the criteria for calculation of rebate in proviso (f), then there could have been some strength in the department's stand since no super tax was calculable under para. (2B).

Taking the argument further, there are three doctrines found in the province of interpretation of statutes which appear to be relevant in the present controversy---the first one is the doctrine of "immediate connection" and the second one is the doctrine of "contextual control". The first doctrine i.e. the doctrine of immediate connection has been stated with precision by Sir Robert Collier in the Privy Council in Robertson v. Day 5 App. Cas 62 at 69 [this doctrine was also the subject-matter in Gibson and Howes Ltd, v. Lennon 24 CLR 140 and on appeal in 26 CLR 285; all these judgments alongwith the Robertson's case (supra) have been cited in Bindra's "Interpretation of Statutes" by Justice K. Shanmukham, 8th Edition, 1997 at p.263 footnote No.6] to the effect:---

"It is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in *immediate connection with them."

(*Underlining for emphasis)

The second doctrine i.e. the doctrine of contextual control is that when construing an Act of Parliament or any other legal instrument, the plainest of the words are controlled by reference to the context [see Bindra's "Interpretation of Statutes" by Justice K. Shanmukham, 8th Edition, 1997 at pp. 263-264, citing, inter alia, Bourne v. Norwich Crematorium (1967) 2 All ER 576 at 678; opinion of Sikri CJ in Kesavananda Bhartia v. State of Kerala AIR 1973 SC 1461].

The third doctrine is that nothing is to be added or subtracted from what has been mentioned in the statute as held by the Hon'ble Supreme Court of Pakistan in a cases Bisvil Spinning v. Superintendent, Central Excise PLD 1988 SC 370 and in cases Khurram Industries v. CIT reported as 2001 PTD 781(c) and Ch. Mohammad Yousuf v. Azad Government and others reported as PLD 2001 Azad J&K 60(e)].

Applying the above three doctrines it is clear that on a plain construction of proviso (f) the calculation of the rebate is to be made with reference to super tax calculable, under Para (C), which can well be calculated. In other words, for the purposes of proviso (f) no reference is to be made to para. (2B), as proviso (f) expressly makes the super tax payable under para. (C) as the criteria, while making no mention of para: (2B).

The term used in proviso (f) is the super tax payable and not "paid". The law has distinguished between the two terms. The term "payable" connotes the obligation to pay; whereas the term "paid" means actual payment. It was in view of this distinction that in a cases titled CIT v. Naveed Ahmed Sheikh reported as 1992 PTD 25 it was held that clause (83) of the Second Schedule to the 1979 Ordinance, before its amendment, permitted the allowability as an expenditure of wealth tax "payable" which may not have been actually "paid". Applying the ratio of that case it has become obvious that the criteria under proviso (f) is not actual payment of super tax but an amount which would be payable under para. (C). It may be reiterated that the super tax is payable under para. (C) but the same is exempt due' to operation of para. (2B).

This conclusion is also in line with the interpretation offered by the Central Board of Revenue in Circular 13 of 1982, dated 23-8-1982, whereby for the purposes of export rebate falling under proviso (C) to Paragraph (A) to Part I of the First Schedule, the share of a partner was to, be determined after taking, the super tax "payable" and not super tax actually "paid", since the words used were "payable" and not "paid". This is also in consonance with the decision of the Hon'ble Sindh High Court in the, case titled CIT v. Younus Brothers reported as 1983 PTD 389.

13. We have further observed that not only it is the law but also a settled departmental practice, evidence through the circular mentioned above, that the term "payable" is completely divorce from the word "paid". This departmental practice, whether right or wrong, has given rise to vested rights to the appellants, which cannot be taken away as has been held by the Hon'ble Supreme Court of Pakistan in a case titled Radaka Corporation v. Collector of Customs reported as 1989 SCMR 353(b)]. The upshot of the above discussion is that the impugned orders under section 66-A of the 1979, Ordinance are not sustainable, being unlawful and without jurisdiction, the appellants having correctly taken the benefit of proviso (f). The impugned orders are annulled and all the fifty five appeals are allowed.

14. In the end, we would like to appreciate the learned representatives from both the sides and appearing on Court call for the valuable assistance rendered by them in the matter.

C.M.A./1046/Tax (Trib.)Appeals allowed.